Lenders get bigger payday in latest legislative version

We’re pleased that a bill aimed at reining in the worst excesses of payday lenders won approval in the Colorado Senate last week.

Unfortunately, the version of the bill adopted in a narrow vote by the Senate Friday has been watered down so much that it would allow payday loan operations to charge effective annual interest rates on short-term loans of up to 135 percent. We much prefer the 45 percent limit on annual interest rates that is in the House version of the bill. House Bill 1351 now goes back to the House for a final vote.

Politics, of course, is the art of compromise. And it’s clear that House Bill 1351 barely had enough support to get through the Senate in its watered-down version. It passed by a vote of 18-17, with three Democrats joining Republicans in voting against the bill.

And limiting the total amount of fees and finance charges to an average rate of 135 percent a year is still better than the current situation, in which total charges on a short-term loan can approach 400 percent in annualized interest.

We’ve heard the argument that it’s important not to set too many restrictions on the payday-loan industry, because it provides a source of short-term cash for many people who might otherwise turn to loan sharks for their money.

While that may be true, and there is no doubt risk in this lending, it’s hard to believe the payday loan industry can’t get by with an effective annual rate of 45 percent — a rate that banks and credit card companies would love to be able to charge.

Perhaps with the additional revenue they’ll still be allowed to charge under the Senate version of HB 1351, payday loan companies could help pay for some independent financial counseling for the people who use their services.